Any misrepresentation or concealment of facts concerning the risk to be insured can lead to nullity of the insurance policy[1], also known as nullity ab initio. However, in the case of deceitful representation of a loss, the consequence is forfeiture of the right to an insurance indemnity[2], although the insurance policy remains valid.

In a recent judgment in Soucy c. Intact Compagnie d’assurance[3], the Superior Court dealt with a case where both of these concepts were raised. After his home was damaged by fire in 2020, the insured, Soucy, being dissatisfied with the slow processing of the insurance claim, brought an action against the insurer, Intact Compagnie d’assurance (“Intact”), to force it to pay him the indemnity. In the course of the examinations on discovery, Intact learned that Soucy had made a deceitful representation in the context of a former loss, namely when his cottage caught fire in 2012, which cottage had also been insured by Intact.

Most notably, Intact argued that the deceitful representations made in 2012 regarding the fire at the cottage were of a nature that would influence its appraisal of the risk, such that it would have subsequently refused to insure Soucy’s home had it been aware of this on a timely basis. In addition to seeking restitution of the insurance indemnity in connection with the 2012 cottage fire, Intact also sought nullity ab initio of the insurance policy under which an insurance indemnity for the 2020 fire in Soucy’s home would be otherwise payable.

Deceitful representation

A deceitful representation is a statement [translation] “made for the purpose of misleading the insurer and therefore obtaining a benefit, payment or indemnity to which the insured is not entitled.”[4] Normally, the consequence of such deceitful representation is forfeiture of the right to an insurance indemnity, not nullity of the insurance policy. Furthermore, such forfeiture is limited to the risk attached to the deceitful representation and the type of property involved (movable or immovable, personal or occupational)[5].

In the Soucy case, the judge concluded that [translation] “the loss of December 18, 2012 was an invented loss or an intentional fire”[6]. Despite the number of years that had passed since the deceitful representations were made, the court decided that Soucy had to repay Intact the insurance indemnities he had received for that claim, since it was only in 2021 that Intact learned of Soucy’s deceitful representations.

Nullity ab initio

Since it is based on the mutual nature of the risk, the insurance contract is deemed by the jurisprudence to be a contract based on the highest degree of good faith. This principle means that the insured has an obligation to declare all the circumstances they know of that are of a nature to materially influence an insurer in the appraisal of the risk and the decision to cover it[7]. If such representations are false or if the insured has concealed anything, it is possible that the insurance contract will be found absolutely null and void (known as nullity ab initio)[8].

To arrive at this drastic consequence, namely nullity ab initio of the insurance policy, the insurer must prove (1) that the concealment has a link to the risk appraised and (2) that a reasonable insurer would have considered the misrepresentation as being material to the appraisal of the risk.

In this case, Intact succeeded in proving that the deceitful representations concerning the 2012 cottage fire met the necessary tests to obtain nullity of the insurance contract on Soucy’s home, which burned in 2020. According to the court, there was no doubt that, had Intact known of the insured Soucy’s misrepresentations, it would have refused to insure him.

Conclusion

Soucy c. Intact Compagnie d’assurance combines the two concepts studied above: deceitful representations made in connection with a prior claim lead to both forfeiture of the right to an indemnity for the earlier fire and absolute nullity of an insurance contract entered into later. In addition, this decision reminds us how vitally important it is for the insured to properly disclose all factors that might influence an insurer’s appraisal of the risk: [translation] “when it comes to fire insurance, ‘moral risk is a factor of the highest importance’”[9] Note, however, that as of the date of writing, the time limit for appealing this decision has not yet run out[10].

The authors wish to thank Dylan Bond for his contribution to the drafting of this article.

[1]   Article 2410 C.C.Q.

[2]   Article 2472 C.C.Q.

[3]   2023 QCCS 3098.

[4]   Bureautique Nouvelle-Beauce inc. c. Compagnie d’assurances Guardian du Canada, [1995] R.R.A. 307, 1995 CanLII 5474 (C.A.).

[5]   Article 2472 C.C.Q.

[6]   Para. 78.

[7]   Article 2408 C.C.Q.

[8]   3377466 Canada ltée c. Compagnie d’assurances Canadienne générale, [2005] R.R.A. 955, SOQUIJ AZ-50322039, appeal dismissed (2007 QCCA 1585).

[9]   Para. 75; citing Madill c. Lirette, [1987] R.J.Q. 993; 1987 CanLII 553 (C.A.).

[10]  The time limit for appealing this judgment runs out on October 4, 2023.